Saturday, July 14, 2012

Two weeks ago, back on June 29, as equity indices were attempting one of their quintessential rocket launches following declines in excess of 10% in early June, we opened our Near Term Outlook dispatch for the NDX stating the following.

“Although some smaller dates may occur in between, i.e. Wednesday marking 5-sessions from the 2633 pivot high, and Monday marking session 8, the next turn-date noted on chart falls on Wednesday July 11, 2012 (+/- one bar).”

In the chart below, we fast forward to last Friday July 6, where we had opened dialog on the NDX chart below stating that so long as 2660.26 holds pivot high, we are citing an 80-pt. sell trigger contingent upon breach and sustained trade beneath the rising red trendline trajectory so noted.

One week thereafter, precisely upon the turn-date (+/ one bar, which accounted for the July 4th Holiday) forecast two-weeks prior for Wednesday July 11 (+/- one bar), the NDX set a tradable low at 2522.89 in concert with capturing the projected 80-pts of downside laid out the week prior. So where does the NDX go from here? Though we cannot be 100% certain, it is plausible that the NDX is on the verge of cresting a lower high in advance of another sizable leg down.

However, as the wizards of Wall Street and Washington can never be trusted, one should not rely upon such an outcome as a sure bet. Instead, allow us to provide three short-term constraints going forward.

First, so long as the NDX maintains trade above 2579, we have in place a defense boundary to an upside price target at 2696.

Second, if the current rally continues and is able sustain trade above 2608; odds will increase substantially for a retest or besting of the 2660.26 pivot high.

Third, so long as 2660.26 holds pivot high, any decisive resumption to the downside that re-breaches and sustains trade beneath the rising dashed trendline so noted, shall reclaim defense of its associated price target at 2420.

As we said, equity bulls are doubling down as they are on the ropes. If they fail, they risk another leg down. If they succeed, prices are likely to grind higher into months-end.

S&P Bears shutdown amid Fridays rocket launch

Before we go, we will take you on a short ride over to the CME to see how counter-trend traders from the Chart-Cast Pilot are dealing with all of the post July 4 fireworks.

For the first two weeks in July, our counter-trend trading strategy is up over $1,000 dollars per contract traded. As you can see, beginning on Wednesday July 11, we began bottom fishing for a tradable low.

As they say, the third time is a charm. After stopping out on two previous attempts to buy into weakness, longs taken at 1328 held their ground, and we rode the rocket launch all the way up to 1348.25 on Friday.

Though not an officially tracked strategy within our model portfolio, we nonetheless provide members with an ancillary birds-eye view of what takes place in this strategy on a daily basis. The 30-minute chart renders ES mini futures for the S&P in lockstep with the cash market viz. it does not trade overnight.

Each daily session contains 13 price bars representing each ½ hour of trade throughout the regular cash session hours. Here you can see the counter-trend bears top fishing at bar-9 amid Friday’s rocket launch, taking 20.25-pts in profits on longs and reversing short at 1348.25 for a profit of $1,012.50 dollars per contract traded.

At bar-12, an hour before the cash close, bears were shutdown, covering shorts at 1350-even giving back $87.50 per contract heading into the weekend flat.